This question pops up most often with startup companies. Established businesses have a lot at stake and the value of a business attorney is clear. Revenues and success are less certain with new businesses. While spirits are high cash on hand is often low. I see similar situations when clients are considering the purchase of a business or franchise. This includes employment arrangements that have a buy-in down the road.

If the business is closer to a project or hobby, you might not need to hire a business lawyer to form your limited liability company (LLC), S corporation, partnership, or other entity type. But if the idea is that meaningful amounts of money will be in play, having an attorney is often a no-brainer. Also, state rules might require the use of a lawyer depending on the entity type. The question at its core is do you have the experience to do this in a way that won’t hurt you later on. That is a determination that each owner must make. Business lawyers bring experience to the table that the owner(s) might not have. Here are some things to think about:

In which state do I form the business? State law governs business formation. Each state has its own entity types and rules for forming them. My clients often consider South Carolina as well as Delaware, Nevada, and other states with favorable laws. The answer commonly turns on what the business activities will be.

Is this truly a startup business? If operations have started, the business is probably being conducted as a sole proprietorship or partnership. The reason to form something different is to reduce exposure to liability, administrative needs, and other necessities. Particularly with partnerships, some thought needs to be given to the current rights of the owners in connection with transitioning to a new entity type.

Which entity type do I pick? The LLC and corporation are common selections but there are many others. The laws controlling that entity in relation to your business operations determine the best fit. Taxation, employment law, and liability protection are relevant.

What are the state requirements to create this business? In South Carolina or anywhere else, the Secretary of State has a number of forms depending on what is being done. Once you know the type of entity you are forming and whether it is foreign or domestic, you will see what needs to be filed with the state.

What contracts are needed to transact business? This is easy to overlook because so much attention is given to creating the entity. Whether you are offering products or services, the transactions should be protected with contracts. If there are employees or independent contractors, agreements will be needed with them. A related item is documenting the affairs of the business in writing.

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